What is Inflation?
Inflation, simplest definition: money growing faster than what the economy produces.
More currency chasing the same output → prices rise. That’s it. Not greed, not gas prices, not bad luck. The ratio of money to output.
Two ways to fight it. Shrink the numerator → tighten, the painful way. Or grow the denominator → produce more, the prosperous way.
Now the uncomfortable part: the numerator is no longer the Fed’s to shrink. This is the era of fiscal dominance → deficits near $1.9T at full employment, and the Treasury isn’t cutting back under either party. Congress sets the money’s growth path now. The Fed cannot print discipline into Congress.
Forget the numerator. The denominator is the only lever left.
That’s what makes AI different from every inflation fight before it. A genuine productivity boom grows output faster than the money chasing it → disinflation through abundance, not austerity.
And it’s why supply shocks don’t qualify. Oil spiking doesn’t change the money-to-output ratio → one-time price move, washes out when the shock clears. June’s CPI just demonstrated it live.
Warsh quotes Friedman for a reason. Watch the data, not the headlines.